Audit Financial Statements Of The School District
by Alex Saitta
January 16, 2008
What Is An Audit?:
The financial audit report for the 2006-07 school year was released to the public recently. In an audit, an independent accounting firm examines the districtís financial statements and makes sure they were put together using standard government accounting rules and those statements are free from significant mis-statements.
What The School Districtís 2006-07 Audit Says:
Looking at the auditorís opinion, the auditor wrote, ďin our opinion, the financial statements referred to above present fairly, in all material respects, the financial activities of the governmental activities... and are free of material misstatement.Ē
And the two awards listed in the audit report, state the districtís financial statements are ďsubstantially conform to principles and standards of ASBO's" and "achieve the highest standards in government accounting."
In sum, the districtís book keeping is good.
What The Audit Does Not Say:
The auditor and the awards, do not give an opinion or praise to whether or not the district is managing its budget well or not.
The Purpose of Audited Financial Statements:
The purpose of the audit process isn't to create financial statements and make them accurate, so the district can get awards for accurate accounting and book keeping.
THE PURPOSE IS TO CREATE FINANCIAL STATEMENTS, WHICH ARE ACCURATE, SO THE BOARD, THE PUBLIC, THE PRESS, WHOMEVER, CAN ANALYZE THE FINANCIAL CONDITION OF THE DISTRICT AND DETERMINE HOW WELL ITS FINANCES ARE BEING MANAGED. FROM THERE, CHANGES AND ADJUSTMENTS ARE TO BE MADE, IF NEED BE.
When the audited financial statements are released, there is rarely any discussion about what the statements say about the districtís management of the finances, and I can understand why. While the district is getting awards for its accounting, it isnít getting praise for how they manage their money.
Financial Statements -- General Fund Spending:
The school district has a few accounts it collects and spends money from. One is its general fund account. From that account the district pays for its day to day expenses like salaries, utilities and technology upgrades.
According to the audit, General fund spending grew from $88.5 million in 2005-06 to $95.9 million in 2006-07 or by 8.4%. Spending is accelerating. The previous ten years, annual spending grew only an average of 5.2% a year.
The 8.4% growth rate is significant given 5k-12 enrollment grew by only 55 students or 0.3% in 2006-07. By the way, the number of employees grew by 89 or more than enrollment. Also, the district office organizational chart grew from 27 persons in 2005-06 to 41 in 2006-07.
Why did the school district spend thousands of dollars for a new logo? Why spend thousands to send district administrators and board members to fly out of state to look at the designs of new high schools -- they arenít designing the schools? Why did the school board give the Superintendent an $18,000 raise, when she was still under contract for another year at $120,000. Why did the district spend thousands on new cell phones for principals and assistant principals and others, which have computer capability?
I donít oppose additional spending, if the money is spent on the children, but Iím alarmed by the acceleration in spending, and that such non-classroom expenditures have become business as usual at the district office.
Financial Statements -- School District Over Charge Of $2.9 Million:
You have to follow the bouncing ball on this one. According to the initial budget passed in May 2006, general fund expenses and revenues were estimated at $94.5 million. It was a balanced budget, so the general fund savings account was supposed to remain at $16.4.
The board then revised its budget in June 2006, by voting to fund the $0.5 million Gettys traffic project, by taking money from the savings account. In August 2006, the board the voted to raise spending another $1.6 million for computers, by taking the money from the savings account. Net, the savings account was expected to fall to $14.3 million ($16.4 previous balance - $2.1 new spending = $14.3.)
The 2006-07 fiscal year came and went and the $2.1 extra spending for computers and the Gettys project occurred, but the savings account ended the year at $17.2 million. That is, it rose by $2.9 million!
How was that? Actual revenues turned out to be much higher than budgeted revenues, so the district never had to go into the savings account to pay for the extra $2.1 million in spending. Not only that, revenues were so underestimated, there was $0.8 million in revenue left over, that flowed into the savings account.
In sum, the district over taxed people $2.9 million or by about 7 mils in 2006-07.
Year after year the district overcharges the taxpayers, because it understates budgeted revenues, and I complain about it every year. As far as some of the board members are concerned, this is a good thing, because they want the extra money. Well, it isnít a good thing, if you are paying it. The school district just raised property taxes $587 million for the Greenville Plan. It has plenty of money. It doesnít need to be overcharging taxpayers year in and year out in its budget.
How The Over Taxing Works:
One way the overtaxing works is as follows. Letís use round numbers to keep it simple. Letís assume the school districtís budgeted revenues are $100 million, and $40 million is funded by local property taxes. (The rest is state and federal funding.)
The auditor has to estimate what the total assessed value of property in the county will be for the upcoming year, and what the collection rate will be. Letís assume those estimates are $420 million assessed value, and the collection rate will be 95%.
So $420 million x 95% = $400 million. Thus, the expected value of 1 mil (or 1/1000th) is $400,000. To fund the needed $40 million, the school board would then vote to set the millage rate at 100 mils.
The auditor and the finance directors in our county and city governments want to be conservative, because they donít want their revenues to come up short. As a result, they typically low ball the estimated assessed value of taxable property and the collection rate.
Back to our example, lo and behold, six months later when the tax bills are sent out, there is $430 million of assessed value and the actual collection rate turns out to be 97%. Doing the math, $430 million x 97% = $417 million. Thus, the actual value of a mil is $417,000, times the 100 mil tax rate the school board levied and the district collects $41.7 million or an extra $1.7 million.
That works out to the tax rate being 4.25 mils than it needed to be the fund the budgeted $40 million.
Looking at it another way, if the initial estimate of assessed property value was not too conservative, but accurate, the district could have funded the budget with 96.75 mils.
This happens most every year.
Additionally, the school district often underestimates other revenue accounts, and this too causes the milage rate to higher than it should have been.
Iíve been complaining about this to the Superintendent and finance director for years. This upcoming year, fiscal year 2007-08, the district used more aggressive estimates in growing the assessed value of property in the county, and it estimated a higher collection rate.
I give the Superintendent and the finance director credit for that, because Iím the only board member who has complained about it. Hopefully, these more accurate estimates of the collection rate and growth in assessed property values will end the string of annual over collections.
The Auditís Financial Statements -- Total Spending:
Back to the audit. In addition to the general fund account, which I talked about above, the district also has a special revenue account, a debt service account, a building account and a food service account. All these accounts the school district collects and spends from. For example, it charges children for meals and pays for meals out of the food service account.
Money tends to get transferred from one account to another, so to get a handle on total spending, you need to sum spending across all accounts. Total school district spending grew from $122.2 million to $142.7 million or 16.7%. Only 58 cents of every dollar was spent in the classroom.
Despite what some say, public education isnít all about education. It is about educating the children, as well as the money or finances that pay for it all.
On the finance side, the district needs to do a better job of managing its funds. One, it needs to slow the growth in spending. Two, it has to get a higher percentage of its spending into the classroom. Three, the district has to end the annual taxpayer overcharges.
On the education side, in return for all this new spending the district leadership must deliver educational gains for our children, beit in significantly higher graduation rates and test scores.
We have talented teachers, and the school district has been given a lot more money. District leadership now needs to turn the management of the system up a notch, in order to transform this huge financial investment into improved education for our children.